Financial transaction tax

The Financial Transaction Tax (FTT), also known as the "Stock Transfer Tax" or "Financial Speculation Tax," is a proposed tax that would impose a small fee on the sale or transfer of stocks, bonds and other financial assets. The tax would raise a large amount of money while discouraging the kind of speculation that helped lead to the economic collapse. The idea originated with economist Nobel Laureate economist James Tobin.

Proposals for an FTT rate are modest -- for instance 0.25 percent on a stock purchase or sale and 0.02 percent on the sale or purchase of a future, option, or credit default swap. These rates are proportional to the actual transaction costs in the industry.

The FTT is sometimes called a "Financial Speculation Tax," as it would have the greatest impact on high-volume, high-speed speculative traders.

Bills in Congress
In 2010, there were a number of bills in Congress that contain a financial transaction tax.

1) Rep. Pete DeFazio (D-Oregon) has introduced HR 4191, the "Let Wall Street Pay for the Restoration of Main Street Act."  Senator Tom Harkin (D-Iowa) has introduced S 2927, the "Wall Street Fair Share Act." Under these companion bills, half the funds would be deposited in a job creation reserve fund and half would be designated to reduce the deficit.

2) John Conyers (D-Michigan) has introduced HR 5204 - 21st Century Full Employment and Training Act. This bill is designed to ensure full employment (4% unemployment rate) after 10 years. It sets a series of unemployment targets that, if not met, would trigger the disbursement of funds from a "National Full Employment Trust Fund," which would be made up of revenue from a new financial transactions tax on financial corporations. The funds would be used for a direct jobs program that would immediately place unemployed people in public, non-profit and small business jobs in areas hardest hit by unemployment.

3) Pete Stark (D-California) introduced H.R. 5783, the Investing in Our Future Act. “My legislation would simply impose a small tax — of 0.005 percent — on these currency transactions. The money raised would be put toward investments in children, global health and climate change mitigation."

Support for financial transaction tax
Individuals: Financiers George Soros and John Bogle (founder of the Vanguard Group) support the idea along with Warren Buffett, who signed onto an Aspen Institute report recommending a Financial Transaction Tax. Overseas prominent leaders including French Prime Minister Nicolas Sarkozy and German’s Angela Merkle support a global FTT. The New York Times highlighted the FTT as a top idea of 2008, and a long list of prominent economists have supported it including John Maynard Keynes, Nobelists Paul Krugman, James Tobin and Joseph Stiglitz, Jamie Galbraith, Dean Baker, Robert Pollin and Larry Summers. After the 1987 Wall Street crash, an FTT was endorsed by Bob Dole and President George H.W. Bush.

Public Support: Taxes on Wall Street speculation appear to be popular with the public. For instance, a January 2010 poll showed that 81% of Americans agree with the following statement: “We need to rein in the greedy, reckless behavior of the big banks on Wall Street that cost millions of jobs and led to huge bailouts on our dime. This tax will put a limit on the casino culture of Wall Street that provides no real value and only exists to line the banker’s pockets. This reform will strengthen our financial system to help prevent another crisis and reduce the deficit.” Strongly agree 51% Somewhat agree 30% Agree 81% Disagree 15%.

Arguments for the Tax
The Center for Media and Democracy cites the following benefits of an FTT:


 * A FTT would raise over $100 billion per year in badly needed revenue or one trillion over the course of a decade that could be used to create jobs, help our states weather the financial crisis and support critical public services.


 * A FTT would reduce dangerous financial market speculation. Since the tax would hit high-volume, high-speed trading the hardest, it would serve to discourage short-term speculation in financial markets as well as the proliferation of ever more complex derivative instruments. More complex derivatives could be subject to the tax many times over, substantially reducing the potential profits from complexity.


 * A FTT would encourage longer-term productive investment. By reducing the volume and profitability of short-term trading that serves no productive purpose, the tax would encourage Wall Street to find new ways to make money off of longer-term productive investments.

Myths and Facts about the FTT
The Center for Economic and Policy Research developed the following list of Myths and Facts about the FTT.

MYTH: This has never been tried before. TRUTH: The FST is not a new idea. The U.S. had a transfer tax from 1914 to 1966 which levied a 0.2% tax on all sales or transfers of stock. In 1932, Congress more than doubled the tax to help financial recovery and job creation during the Great Depression. Transactions taxes were imposed in most financial markets until the last two decades, and there still is a 0.5% stamp tax imposed on each trade on the London Stock Exchange. The U.S. already has a very modest FST, which is used to finance the Securities and Exchange Commission and the Commodity Futures Trading Commission.

MYTH: Transactions are so internationally mobile that an FTT in one country is unenforceable and will simply result in trading moving overseas.

TRUTH: The U.K. has had a tax on stock trades for decades, and the U.K.’s volume of trading has grown robustly. The revenue it raises each year would be the equivalent of $30 billion in the U.S. Economy. This real-world example indicates that a unilateral financial transaction tax would be both successful and enforceable.

MYTH: The costs will be passed on to average investors.

TRUTH: A tax of 0.25 percent would make little difference to a person who intends to hold onto stocks as a long-term investment. The FTT would cost a day trader buying $100,000 of stock only $125 when they purchase their shares. Also, research shows that most investors will respond to a tax by reducing the frequency of their trades. This means that they will spend roughly the same amount on trades, but will just buy and sell shares of stock less often. But to protect small investors further, the DeFazio-Harkin bill specifically exempt 401Ks, college savings accounts, health savings accounts and the first $100,000 in trades.

Reports
A report released January 24,l 2011 by the Center for Economic and Policy Research (CEPR), found that a financial speculation tax would be a substantial source of money for the government while imposing very little burden on the average taxpayer.

The report found that revenue from the proposed speculation tax could annually exceed 1.0 percent or $150 billion of U.S. GDP, which would more than cover the costs of many government programs and budget items, such as the extension of unemployment insurance, the 2011 payroll tax cut and the projected gaps in state budgets in 2011.

Campaigns

 * AFL-CIO Make Wall Street Pay


 * Center for Media and Democracy, BanksterUSA.org


 * Wealth for the Common Good


 * HealthGAP


 * Robin Hood Tax UK

Sourcewatch resources

 * Key Points Regarding Financial Transaction Tax, CMD

External resources
Americans for Financial Reform letter to the deficit commission re: financial transaction tax]
 * The Deficit-Reducing Potential of a Financial Speculation Tax, a report by the Center for Economic and Policy Research, released January 24, 2011.
 * [http://ourfinancialsecurity.org/2010/11/president-obamas-deficit-commission-should-consider-speculation-tax/
 * Americans for Financial Reform short paper on financial transaction tax
 * Economists' Letter in Support of a Financial Transactions Tax, (A letter from over 200 economists in support of a financial transactions tax), Center for Economic and Policy Research, December, 2009.
 * The Benefits of a Financial Transactions Tax, Center for Economic and Policy Research, December, 2009.
 * The Potential Revenue from Financial Transactions Taxes, December 2009, Dean Baker, Robert Pollin, Travis McArthur, and Matt Sherman
 * Responses to Criticisms of Taxes on Financial Speculation, January 2010, Dean Baker

External articles

 * Paul Krugman, Taxing the Speculators, New York Times, November 26, 2009.
 * Bob Herbert, Where the Money Is, New York Times, January 12, 2009
 * When Financial Markets Work Too Well: A Cautious Case For A Securities Transaction Tax, Larry Summers, Journal of Financial Services Research, 1989.